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Evidence of meeting #7 for Special Committee on Cooperatives in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was credit.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Dale Ward  Corporate Secretary, Manitoba Central, Assiniboine Credit Union
Nigel Mohammed  Director, Business and Community Financial Centre, Assiniboine Credit Union
Albert Cramer  Chairman, Red Hat Co-operative Ltd.
Doyle Brandt  Red Hat Co-operative Ltd.
Peter Harty  Director, Federation of Alberta Gas Co-ops Ltd.
Kevin Crush  Manager, Communications, Federation of Alberta Gas Co-ops Ltd.
Jodie Stark  Vice-President, Legal and Corporate Affairs, Concentra Financial Services Association
Tim Archer  Executive Director, Community Health Co-operative Federation Ltd.
Patrick Lapointe  Member, Community Health Co-operative Federation Ltd.
Merv Rockel  President, Alberta Federation of Rural Electrification Associations (AFREA)
Robert Marshall  President and Chief Executive Officer, Mountain View Credit Union Limited
Dan Astner  Vice-President, Alberta Federation of Rural Electrification Associations (AFREA)
Vera Goussaert  Executive Director, Manitoba Cooperative Association
Bill Dobson  Director, United Farmers of Alberta
Hazel Corcoran  Executive Director, Canadian Worker Co-operative Federation
Peter Hough  Financial Officer, Canadian Worker Co-operative Federation
Bob Nelson  President and Chief Executive Officer, United Farmers of Alberta

10 a.m.

Director, Federation of Alberta Gas Co-ops Ltd.

Peter Harty

Not very much, no.

10 a.m.

NDP

Ruth Ellen Brosseau NDP Berthier—Maskinongé, QC

No?

Are there any programs supporting co-ops? It seems as if the gas co-ops in Alberta are really thriving. There was a need. You guys have just expanded and are doing amazingly well.

What kind of relationship do you want to see in the future between the federal government and co-ops?

10:05 a.m.

Director, Federation of Alberta Gas Co-ops Ltd.

Peter Harty

We did receive one grant through the CCA to do a study on—

10:05 a.m.

Kevin Crush Manager, Communications, Federation of Alberta Gas Co-ops Ltd.

It was on the GIS. That was actually through the CCA. The CDI grant was for our geographic information system feasibility study. We got $51,000 to help out with that study. To date, that's been our only other previous dealing with the federal government. There's really nothing available for us, as gas co-ops, from the federal government.

As far as moving forward, as we mentioned previously, economic diversification offices are probably the best way to have either mentorship programs or funding. We really see ourselves as being small businesses. We're often not classified as small businesses, but we see ourselves as that. We believe that these diversification offices can probably go a long way toward helping support new co-ops throughout the country as well as the gas co-ops. We can always use mentorship in our own programs as well, as we are constantly having new people coming on board.

July 27th, 2012 / 10:05 a.m.

NDP

Ruth Ellen Brosseau NDP Berthier—Maskinongé, QC

It being the International Year of Cooperatives, the federal government does have a role to play. We are meeting with people from across Canada and are getting amazing testimony on how co-ops are thriving. I'm really hoping that something comes out of this report. It's not the ending of the CDI. Maybe we'll find something new. We're looking for recommendations on what you see the relationship with the federal government being with respect to cooperatives.

I was wondering if the Assiniboine Credit Union has any more recommendations. Would you have any recommendations on the future of the relationship between the federal government and the cooperatives?

10:05 a.m.

Director, Business and Community Financial Centre, Assiniboine Credit Union

Nigel Mohammed

Yes, thank you.

One thing I didn't mention in my delivery was that within the co-op sector, there are both for-profit and non-profit co-ops. One very important role that the not-for-profit co-ops have besides their economic impact is in their social impact as well.

One example that comes to mind would be the programs available for for-profit enterprises, such as loan guarantees. These guarantee programs can be accessed through a lender to provide access to financing to support for-profit enterprises; the same isn't true for non-profit co-ops or non-profit organizations generally.

If, for example, a non-profit organization or co-op wants to build assets—they want to buy a building, a day care wants to relocate or to expand spaces in its own building—they have no assets so they can't access financing to get the capital they need to build that building. My suggestion is a loan guarantee much like Canada's small business financing program that was alluded to earlier, but that would be specifically for not-for-profit co-ops to help them build assets and capacity and to access financing so they can then develop their planning and programming to strengthen their internal capacity.

10:05 a.m.

Conservative

The Chair Conservative Blake Richards

Thank you very much.

10:05 a.m.

Corporate Secretary, Manitoba Central, Assiniboine Credit Union

Dale Ward

If I could add—

10:05 a.m.

Conservative

The Chair Conservative Blake Richards

Oh, sorry. If you have something you want to add, I ask that it be very brief, Mr. Ward.

10:05 a.m.

Corporate Secretary, Manitoba Central, Assiniboine Credit Union

Dale Ward

To raise awareness, understanding, and appreciation of the breadth of the co-op sector, having the placement of co-ops and the responsibility for co-ops within the federal government moved over to Industry Canada would be, I think, an important recognition of the spectrum of impact that the co-op sector has in this country. I think that would be a good first move by the federal government.

10:05 a.m.

Conservative

The Chair Conservative Blake Richards

Thank you very much.

We'll now move to Mr. Lemieux. You have the floor for the next five minutes.

10:05 a.m.

Conservative

Pierre Lemieux Conservative Glengarry—Prescott—Russell, ON

Thank you very much, Mr. Chair.

I'd like to thank the witnesses for joining us. This has been a very informative study we're doing, and I appreciate your participating in it.

I wanted to follow up with the Assiniboine Credit Union about the CMHC mortgage loans. It's not my area of expertise, but my understanding is that a long time ago, the CMHC approved certain projects and funded the building of these social housing projects. I consider that to be a high-risk endeavour just because, as you were mentioning, there was no capital you could actually put your hands on. Indeed, it hadn't been built yet. They then built the loan into a long-term mortgage to perhaps reduce the cashflow burden on the social housing cooperatives. Then you made a recommendation that CMHC should negate the penalties when the social housing co-ops ask to break the terms of their mortgage.

As a financial institution, you've got clients who hold mortgages with you. If your clients came to you and asked to break their existing mortgages with you, would you negate the penalties?

10:10 a.m.

Director, Business and Community Financial Centre, Assiniboine Credit Union

Nigel Mohammed

That's a valid question. I think the point with the social housing co-ops, the whole section 95 discussion, is the recognition that these co-ops serve a much bigger purpose than the for-profit enterprises. If one of our members who has a social good, in this case that of social housing, were to come to the Assiniboine Credit Union and ask for some flexibility around penalties, fees, conditions, and we recognized that our decision was going to have an adverse or negative impact, restricting or limiting that member in fulfilling its social mandate, we would certainly be flexible and open to looking at alternatives and solutions in working with that member. We recognize that this is not simply a financial relationship or a financial transaction, but there's a very real, practical social impact—

10:10 a.m.

Conservative

Pierre Lemieux Conservative Glengarry—Prescott—Russell, ON

I do hope your socially minded clientele is paying attention, because what you're saying is important.

There are also sound business decisions that come into effect. Just as you must borrow money from other institutions, other people—bond-holders, etc.—so does the CMHC. If they break their terms with them, there are penalties involved.

I understand what you're saying, but from a business perspective, Canadians expect CMHC to operate under sound business principles, just as your members would expect you to operate. I wanted to make that point.

The other one I want to pursue is the access to financing by co-ops. Over these three days, we've heard generalities that co-ops feel they are somewhat biased against when it comes to accessing financing. But it's hard to determine whether it's the nature of their project, that is, because they're a co-op, or if it's.... As I've asked this question, I've received different responses.

Let me give you the scenario you brought up, of a day care, for example. You have a co-op day care that doesn't have a lot of assets. You're quite right that because they don't have assets or capital as collateral, they're considered perhaps to be a high-risk loan so it's hard for them to seek financing. I see that.

I'm thinking, too, that there are non-co-op day cares that are in exactly the same position. It's not really the fact they would do it for the non-co-op but not for the co-op; I think it's in the nature of the field in which they are operating. Whether or not you're a co-op, you're going to have a struggle finding financing in that field.

I've also made this point with previous witnesses with respect to new businesses. They don't have a lot of collateral either. Finding financing is probably the number one challenge of any non-co-op business as well.

Am I correct in what I'm saying, in that, as a lending institution, there isn't a built-in bias against co-ops but it very much depends on the nature of their business? If they were compared to a non-co-op business in the same type of scenario, they would be treated equally.

10:10 a.m.

Director, Business and Community Financial Centre, Assiniboine Credit Union

Nigel Mohammed

Yes, I think you're right. The fundamentals of financing, of credit decision-making and adjudication, comes down to the three c's of credit: it's the collateral, it's the capacity to repay, and it's the character of the borrower.

The challenge that co-ops perhaps may have, which is unique compared to other structures of enterprises, is that there's still a lot of education that's needed, both, as I mentioned earlier, within the co-op sector—the leadership itself—and also with conventional financial institutions.

With regard to this notion that you need to call a meeting to make a decision, that you need to pass certain resolutions before you make certain decisions based on the bylaws of the co-op, there's that risk to a lender or a potential investor that decision-making is slow, or not efficient or timely. It affects the viability or effectiveness of that organization.

You're right: the fundamentals of lending and credit risk are really no different for a co-op and a non-co-op. I think maybe where we fall short, or where there may be perceived bias in co-ops accessing financing, is that traditional lenders—and I hope credit unions are a bit ahead of the curve on this—are not sufficiently aware of that environment, whether legislative, or the act, which is sort of the enabling environment for co-ops in terms of decision-making and opportunities and so on.

10:15 a.m.

Conservative

Pierre Lemieux Conservative Glengarry—Prescott—Russell, ON

You're making a valid point.

10:15 a.m.

Director, Business and Community Financial Centre, Assiniboine Credit Union

Nigel Mohammed

I think quality education—do you know what I mean?—to us, the lenders in the marketplace, is also important, so we're able to integrate co-ops like any other business enterprise and access forms of financing that would not make it restrictive for them.

10:15 a.m.

Conservative

Pierre Lemieux Conservative Glengarry—Prescott—Russell, ON

It seems always—

10:15 a.m.

Conservative

The Chair Conservative Blake Richards

Sorry. We'll have to stop it there.

10:15 a.m.

Conservative

Pierre Lemieux Conservative Glengarry—Prescott—Russell, ON

That's fine.

10:15 a.m.

Conservative

The Chair Conservative Blake Richards

We've gone significantly over.

We'll now move back to Mr. Harris for the next five minutes.

10:15 a.m.

NDP

Dan Harris NDP Scarborough Southwest, ON

Thank you.

It's interesting, of course, that we've had some discussions now this morning about the Business Development Bank of Canada. That's an institution, of course, that does a lot of lending to small and medium enterprises, start-ups, and small businesses. But what I'd perhaps like, through the chair, to ask the analysts is whether cooperatives have access to that money in the same way that a sole proprietorship or a traditional business, because that could be one of the barriers. When we speak about cooperatives being misunderstood, and the education required around it, they are a viable alternative business model. And that needs to be recognized throughout our financial systems, as well as in the general public, so that more people perhaps look to that avenue when they're looking to start up a small business or to engage in community endeavours.

In community economic development, especially in rural areas, co-ops have been critical in fulfilling that need, and the Alberta gas co-ops would be an example of that.

Mr. Ward, I noticed right at the end of one of your statements a few minutes ago you spoke about the broadness of cooperatives and how perhaps they should be moved over to Industry. As we know, they're currently under the purview of Agriculture, and that made a lot of sense when cooperatives were first founded. They were largely in agriculture areas, but we've heard from several witnesses now that perhaps while there is still a very strong agricultural component within many co-ops, there are many other cooperatives that have outgrown that. They also feel that Industry would be the appropriate place for them to fall under.

Could you perhaps expand upon your statement earlier in regard to why you think that change should be made?

10:15 a.m.

Corporate Secretary, Manitoba Central, Assiniboine Credit Union

Dale Ward

Yes.

In terms of the rationale, as you heard from many of the individuals appearing before your committee, the spectrum of organizations, the spectrum of industries that co-ops are engaged in is extremely broad. It's no longer rural-based or agricultural-based. There are still very deep roots that go into that area, but in terms of the financial cooperatives or credit unions across the country—including caisses populaires—they're deeply immersed in the cities.

In terms of looking at raising the recognition and essentially, maybe, the integration and understanding of the co-op business model throughout government, I think that placement in Industry Canada would make greater sense than saying that co-ops are only small, rurally based organizations. That is truly no longer the case.

You spoke earlier about the Business Development Bank and a general raising of understanding of co-ops. I would argue that they're not just an alternative business model but a preferable model for so many organizations like day cares and so forth, a model whose start-ups have proven to be, I think, statistically more sustainable over time.

It is a matter of raising the awareness and the profile that would be served by moving them under Industry Canada.

10:15 a.m.

NDP

Dan Harris NDP Scarborough Southwest, ON

Thank you very much for that.

That they are a preferable business model is certainly something that I'd be interested in saying but perhaps have held back from saying that because I don't want to be pejorative in any way. Studies have shown that five years out, half as many co-ops fail as regular businesses. Certainly, I think the business case is made right there that they are more economically stable.

The Alberta gas co-ops, in their opening remarks, had mentioned that as well, that the federal government needed to recognize that fact. Do you believe there is a disconnect currently, such that perhaps the federal government doesn't understand the power of co-ops?

10:20 a.m.

Manager, Communications, Federation of Alberta Gas Co-ops Ltd.

Kevin Crush

I think it's more to say in general.

I'm not sure that most organizations out there really understand what cooperatives are, how they work, or that they are a viable alternative. I'm not going to say it's just the federal government. It's just about everybody.

An example, because we're talking a little bit about financing, is one of our gas co-ops. A couple of years back a private company that ships gas out past them—they tap into their pipeline—abandoned that pipeline, and this co-op, as well as the town, had to essentially plough 80 kilometres of pipeline to make sure that the towns and the communities had heating for the winter.

That's about a half million dollar project. No bank would give them money, and the reason was that if the co-op defaulted on the loan, what bank would call that in? That pipeline goes to their neighbour's house; they're not going to say no more gas. So it's very difficult for us to get financing as well.

We've had a number of issues where, yes, we would like to get financing, but it's just not happening. We're not considered to be a traditional business model.